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The race for a Central Bank Digital Currency (CBDC) is heating up, with countries ready to counter China’s speed. Japan appears to be at the forefront of this attempt, with tests already set for several regions.

Seeking Help from Everyone

The Japanese government has now tapped 30 firms to partner on the upcoming digital yen, Reuters reports. The report confirmed that the companies represent several of Japan’s top economic sectors. There are banks, brokerage firms, telecommunications service providers, utility firms, and more. 

The digital yen has become a focal point of Japan’s economic strategy. The country is notorious for slowly adopting cashless payments, with cash representing up to 80 percent of settlements done in the country. 

Now that it is moving ahead with its digital yen, the government is being cautious to ensure a successful implementation.

Hiromi Yamaoka, a former executive at the Bank of Japan, will head the group of companies in the tests. As he explained, the private banks in the group will be responsible for issuing the currency for the experiment. He also added that they hadn’t ruled out the prospect of other actors being part of the issuance process.  

Yamaoka also noted that some of the country’s leading banks – including Mizuho Financial Group, Mitsubishi UFJ Financial Group, and Sumitomo Mitsui Financial Group – all had digital payment systems. Speaking on the experiment’s nature, he explained that they were looking to avoid a fragmented digital payments ecosystem.

“Japan has many digital platforms, none of which are big enough to beat cash payments. […] What we want to do is to create a framework that can make various platforms mutually compatible,” he said. 

Steps Towards an Encompassing State-Backed Asset

The policymaker also explained that the Bank of Japan was dealing with a question of possible massive capital outflows from local banks once the CBDC arrives. 

As he pointed out, they were looking to create a system where CBDCs and private deposits can co-exist. Tackling this problem, while also ensuring that the digital yen remains convenient to use and interoperable with different platforms, will require input from the private and public sectors. 

Japan appears to be taking a page out of China’s playbook with its CBDC development. The latter began tests for its digital yuan in April and has involved several of its largest firms in the endeavor. 

So far, companies like the Agricultural Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China, and China Telecom have participated in the trials. Some large tech firms to get a piece of it also include Didi Chuxing, the nation’s largest ride-hailing service, and tech conglomerate ByteDance. 

Last month, Mu Changchun, the head of the Peoples’ Bank’s Digital Currency Research Institute, confirmed to a news outlet that they also planned to seek input from WeChat Pay and Alipay. Both are the country’s largest digital payment processors, and their input will help ensure the digital yuan’s optimal access and interoperability.

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